U.S. indicts six as Volkswagen agrees to $4.3 billion diesel settlement

David Shepardson

6 Min Read

WASHINGTON (Reuters) - Volkswagen AG (VOWG_p.DE) has agreed to pay the largest ever U.S. criminal fine levied on an automaker to settle charges that it conspired for nearly 10 years to cheat on diesel emission tests, while prosecutors on Wednesday charged six current and former senior VW executives for their roles in the scheme.

The German automaker agreed on Wednesday to pay $4.3 billion in U.S. civil and criminal fines and pay California $153.8 million. In total, VW has now agreed to spend up to $22 billion in the United States to address claims from owners, environmental regulators, U.S. states and dealers.

Among those indicted was Heinz-Jakob Neusser, former head of development for VW Brand, who was suspended in 2015. He was also previously head of engine development. Two other former heads of engine development, Jens Hadler and Richard Dorenkamp, were also indicted.

“It is now clear that Volkswagen’s top executives knew about this illegal activity and deliberately kept regulators, shareholders and consumers in the dark - and they did this for years,” said Andrew McCabe, the FBI’s deputy director, at a press conference. “We can’t put companies in jail but we can hold their employees personally accountable. We can force companies to pay hefty fines.”

Five of the six current and former Volkswagen executives are in Germany and it is unclear if they will come to the United States to face charges since Germany typically does not extradite its citizens.

The indictment said the executives engaged in a 10-year conspiracy to cheat U.S. emissions tests and then cover up the excess emissions even as regulators questioned irregularities.

The Justice Department said that in 2006 VW realized it could not meet the tougher rules and VW engineers designed a system to detect when cars were being tested in the lab and then to emit up to 40 times legally allowable pollutants when driven. VW executives destroyed documents and other evidence in an attempt to avoid detection, the Justice Department said.

U.S. Attorney General Loretta Lynch declined to say if any higher level executives could face charges. “We will continue to pursue the individuals responsible for orchestrating this damaging conspiracy,” she said.

Volkswagen Chief Executive Officer Matthias Mueller said in a statement the company “deeply regrets the behavior that gave rise to the diesel crisis” and vowed to continue changes in how the company operates.

One of the six charged, Oliver Schmidt, who was a manager in charge of VW’s environmental and engineering office in Michigan, was arrested in Florida on Saturday. He faces a hearing Thursday in Miami to determine if he should remain jailed before trial.

A seventh VW employee pleaded guilty in September and agreed to cooperate.

VW will pay a $1.5-billion civil fine and $2.8-billion criminal fine. It will not be required to make any additional restitution payments.

According to the plea agreement made public Wednesday, the company has fired six employees, suspended eight and disciplined three who participated in misconduct. The criminal agreement still must be approved by U.S. District Judge Sean Cox in Detroit, while the civil consent decree needs approval from a federal judge in California.

The VW plea agreement says the automaker could have been fined as much as $34.1 billion for its criminal conduct under federal guidelines.

A person briefed on the matter said the Justice Department initially sought significantly higher fines but during intensive talks reached a deal.

FACES INDEPENDENT MONITOR

VW admitted in September 2015 to installing secret software in hundreds of thousands of U.S. diesel cars to cheat exhaust emissions tests and make them appear cleaner than they were on the road, and that as many as 11 million vehicles could have similar software installed worldwide.

Many senior managers departed following the scandal, including chief executive Martin Winterkorn, and VW has been barred from selling diesels in the United States since 2015.

The automaker will also face oversight by an independent monitor for three years and has agreed to make significant reforms.

VW still faces lawsuits from about 20 U.S. states, lawsuits from U.S. investors and will spend years buying back or fixing nearly 580,000 polluting vehicles.

The company’s board met for more than 10 hours Tuesday in Wolfsburg, Germany and two hours Wednesday before approving the deal. VW was in intensive talks with regulators in recent weeks to reach a deal before the end of the Obama administration. Without a deal by next week, a final resolution could have been delayed by months until the Trump EPA and Justice Department teams are in place.

Volkswagen, which may have topped Toyota in 2016 as the world’s largest automaker, is eager to move past the scandal and focus on introducing new vehicles for the U.S. market. It’s shares rose 3.4 percent on news of the settlement Wednesday to their highest level since the scandal became public in September 2015.

Reporting by David Shepardson in Washington and Andreas Cremer in Berlin, Joern Poltz in Munich; Editing by Chizu Nomiyama, Nick Zieminski and Bernard Orr